AM Best Affirms Credit Ratings of New Zealand Medical Indemnity Insurance Limited

AM Best has affirmed the Financial Strength Rating of B+ (Good) and the Long-Term Issuer Credit Rating of “bbb-” (Good) of New Zealand Medical Indemnity Insurance Limited (NZMII) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect NZMII’s balance sheet strength, which AM Best assesses as adequate, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management (ERM).

NZMII’s balance sheet strength is underpinned by risk-adjusted capitalisation at the strongest level as of 31 March 2023 (fiscal year-end 2023), as measured by Best’s Capital Adequacy Ratio (BCAR). Prospective risk-adjusted capitalisation remains sensitive to the pace of the company’s business growth and the size of future dividend distributions given its modest capital base. Additionally, the company’s balance sheet strength is supported by its conservative investment portfolio, consisting mainly of cash and fixed-income securities. Partially offsetting factors include the company’s small absolute capital base, which increases the sensitivity of capital to shock events, and its limited financial flexibility.

NZMII’s operating performance is assessed as adequate, demonstrated by a five-year average return-on-equity (ROE) ratio of 14% (fiscal years 2019-2023). The company’s overall operating performance has improved significantly since fiscal year 2021, as a result of remedial actions taken by management, including premium rate adjustments and shifting the composition of the investment portfolio to reduce investment risk. In fiscal year 2023, the company recorded a favourable ROE of 15.7% and a combined ratio of 64.5%, as calculated by AM Best. Additionally, NZMII’s earnings continue to be supported by healthy investment income, with the five-year average net investment yield (including gains) standing at 3.4% (fiscal-years 2019-2023). Although prospective underwriting results remain sensitive to increased claims and elevated expenses, operating profitability is expected to remain positive and supportive of the adequate assessment.

AM Best assesses NZMII’s business profile as limited given its position as a small and niche insurer in New Zealand providing medical indemnity insurance to medical practitioners and health professionals. The company’s claims consist largely of legal fees excluding medical injury costs. As a monoline insurer with operations in a single country, AM Best views the company as having limited geographic and product diversification. Access to new business is supported by NZMII’s affiliation with the New Zealand Resident Doctors’ Association.

NZMII’s ERM is assessed as appropriate given the size and complexity of its operations. A key risk over the medium to long term is the disestablishment of district health boards in New Zealand, which provide considerable support to the company in accessing new business. However, the company’s management has taken measures to mitigate this risk by actively engaging with the new centralised body replacing the district health boards, Health New Zealand, to smooth the transition and maintain access to new business prospectively.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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